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Thursday, April 24, 2008

Throughout the federal government, agency officials and their staffs have begun the work of preparing for the transition to a new president and a new administration. One of the chief architects of that transition is Danny Werfel, Deputy Controller at the Office of Federal Financial Management with the Office of Management and Budget. He gives FederalNewsRadio insight as to how he's getting the job done.

Monday, April 21, 2008

Federal agencies can’t account for $58 billion of what they bought from each other in 2007. That may be alarming, but it beats the figure of two years prior when agencies were $91 billion out of balance.

The improvement reflects the impact of new accounting rules put in place in 2005.

“The business rules were the first attempt we had at trying to standardize, and we’re starting to see some progress,” said Robert Reid, deputy assistant Treasury secretary for accounting policy, during an April 17 panel discussion.

Agencies buying goods and services from each other have long struggled to square their balance sheets.

Governmentwide rules requiring standard accounting procedures for intragovernmental agreements have helped ensure agencies are able to reconcile their books more often, said Reid and a panel of government financial management leaders assembled by the National Academy of Public Administration.

“If you get it right from the start, there is a lot less of a chance that it will be unreconciled on the back end,” said John Cox, chief financial officer for the Housing and Urban Development Department. Cox and Reid have been among the leaders of a group working to solve the government’s intragovernmental transaction problems.

Keeping agencies’ books in balance is important because when they don’t accurately account for the money passed between them neither agency knows how much it has at its disposal to achieve the mission, said Danny Werfel, the Office of Management and Budget’s acting controller.

OMB and the Treasury Department created a watch list of high-dollar-value transactions that are the most out of balance. Agencies having transactions on the list, which OMB started in 2006 and which is not public, meet with OMB and Treasury to discuss the causes of the imbalance and take corrective action, Werfel said.

The corrective actions taken as a result of the watch list have knocked $10 billion off the government’s unresolved intragovernmental accounts, Werfel said.

The next step toward achieving that goal is standing up an intragovernmental dispute resolution committee to handle unsettled claims between agencies that can’t be resolved in another setting, Werfel said. Chief financial officers would moderate for the parties in dispute to work out agreements to settle the accounts, he said. Werfel hopes to have the council set up by the end of September, which is the end of fiscal 2008.

The final step is much further down the road — an information technology system that would permit agencies to make intragovernmental transactions automatically within the standard business processes.

“We won’t solve this problem unless we ultimately use technology,” Cox said.Agencies need to find a Web-based tool to bridge the differences for their more than 250 financial management systems, Cox said.

Thursday, April 17, 2008

The Department of Veterans Affairs is tasked with caring for the needs of military veterans both in times of peace and at war. With conflicts raging in Iraq and Afghanistan, the VA is finding itself challenged to keep up with the need for veterans benefits, especially health care, while trying to update their IT infrastructure and harmonize their medical records system with those of the Pentagon. Robert Henke, who serves as both VA's Chief Financial Officer and Chief Acquisitions Officer, talks about how he was inspired to get into the government, the challenges of keeping up with IT, and recent headlines surrounding the use of government issued credit cards.

Wednesday, April 16, 2008

The defense department has spent billions to fix its antiquated financial systems. So why does the Pentagon still have no idea where its money goes?

Since 2004, the Pentagon has spent roughly $16 billion annually to maintain and modernize the military's business systems, but most are as unreliable as ever—even as the surge in defense spending is creating more room for error. The basic defense budget for 2007 was $439.3 billion, up 48 percent from 2001, excluding the vast additional sums appropriated for the wars in Iraq and Afghanistan. According to federal regulators and current and former Pentagon officials, the accounting process is so obsolete and error prone that it's virtually impossible to tell where much of this money ends up. While the department's brass has made a few patchwork improvements, billions are still unaccounted for. The problem is so deeply rooted that, 18 years after Congress required major federal agencies to be audited, the Pentagon still can't be. (Read a chronology of efforts to modernize the military's financial systems.)

"In the Defense Department, what you have now are material weaknesses that are in every single area, in every part of the department, so deep and so wide you do not really have any way of figuring out where money is being spent," says Linda Bilmes, a federal budget expert at Harvard's Kennedy School of Government.

According to David Walker, who recently left his post as head of the Government Accountability Office, the failure of the Pentagon's outdated and incompatible systems to keep tabs on expenditures—even as the wars in Iraq and Afghanistan eat up an ever-bigger chunk of the federal budget—puts several Defense Department agencies high on the G.A.O.'s list of federal programs that are mismanaged and prone to fraud, waste, and abuse.

Since the scandal in 1985, which revealed that the Navy paid Lockheed $640 each for airplane toilet seats, Congress, military leaders, and regulators have agreed that the Defense Department's internal accounting system is in shambles. What's startling is the scope of the problem and the government's seeming inability to fix it. Over the past two decades, the Pentagon has repeatedly tried to design new computer systems to replace the antiquated ones. Even today, new incompatible financial systems continue to proliferate within the services, contrary to directives from the secretary of Defense's office.

The dysfunction stems in part from the traditional independence of the military branches. Over several decades, they have cobbled together separate processes for identical functions, resulting in the uncontrolled growth of more than 4,000 accounting, financial, and inventory systems. Their names form an acronym soup: CAPS, Stanfins, IAPS, Somards, Samms, Mocas, HQARS, Stars. The department's primary system for handling weapons contracts and payments dates from 1958; a costly attempt to replace it was abandoned in 2002 as a failure. The Army's notoriously inaccurate main accounting system was created in 1966.

Since 2005, the Pentagon has been carrying out what it says is the most comprehensive reform ever. Undersecretary of Defense Tina Jonas, who is now the comptroller and chief financial officer, is heading up an elaborate effort—once again—to develop compatible systems to share information seamlessly. A 2007 department report foresees the Pentagon becoming "as nimble, adaptive, flexible, and accountable as any organization in the world."

Overburdened by wars in Iraq and Afghanistan, the individual services remain reluctant to commit staff members and money to Jonas' financial-reform effort.

Jonas says that her approach is working and that eight small Pentagon branches, like the Army Corps of Engineers, have now passed audits. "I think we're making good progress," she says.

Nevertheless, the four military services still can't be audited, and Jonas declines to predict when the entire Defense Department will finally pass an audit. "We don't know what we don't know," she says.

Tuesday, April 15, 2008

The Bush administration will leave much for the next president, but its legacy will not include a fiscal 2010 budget, according to a recent memorandum Office of Management and Budget Director Jim Nussle sent to agency heads.

Instead of readying a full federal budget, Nussle said OMB "will prepare a budget database that includes a current services baseline," or an estimate based on current spending that does not include proposed increases and new policy proposals.

In what some budget analysts called a surprising departure from past practices during the transition from one administration to another, Nussle also said agencies this year need not submit budget requests and supporting documents in September as they normally do.

Instead, agencies should estimate their baseline spending and submit budget requests only after a new administration or transition team arrives, Nussle said in his April 7 memo.

The decision means neither President Bush nor federal agencies will have to bother offering proposals that most experts agree are likely to be ignored by the next White House and Congress.

But Nussle's approach was criticized by several budget analysts who argued it could cause agencies to delay consideration of fiscal 2010 budget plans until well into 2009. "It's pretty outrageous," said one veteran of the congressional budget process.

Other budget experts said OMB's collection of baseline spending information would be sufficient for the transition. "I don't think it's a very big deal . . . as long as you have very good baseline information," said Alice Rivlin, who served as OMB Director under Clinton.

Former Congressional Budget Office Director Robert Reischauer said OMB's plan would not cause problems if agencies work on routine parts of their budget proposals before the transition and, as Nussle's memo suggests, work with the incoming president's transition team before January.

CAMBRIDGE, Md. — Making lines of business efforts work is mostly a matter of planning ahead, according to panelists who spoke today at the Interagency Resources Management Conference.

"Big failures tend to be on the people side, the management side, and not on the technology side," said Larry Neff, deputy chief financial officer at the Transportation Department.

DOT runs a financial management shared-services center with the Government Accountability Office as its single largest user, and some smaller agencies are also signed on. The Financial Management Line of Business initiative is intended to concentrate financial management information technology services into a few agencies, which then provide the services to other agencies. The goal is to lower overall costs by reducing the duplication that comes when each agency runs its own financial management operation.

Smaller agencies have been the most eager users to sign up with the shared-services centers. Anton Porter, deputy CFO at the Federal Energy Regulatory Commission, said small agencies are hard-pressed to manage their own systems and welcome the help.

"They're very mission-oriented," he said. "What the shared-services model provides is the opportunity for the small agencies to focus strictly on mission."

Small agencies trying to run their own IT operations typically have little resilience, said John O'Connor, director of GAO's office of financial management.

Inspectors general across government identified $11.4 billion in potential savings through audits and closed 33,740 investigations in fiscal 2007, according to the IG community's annual report to the president.

More than 12,000 employees at 64 IG offices issued more than 6,500 audit reports and testified before the Congress 130 times in 2007. OIG investigations led to $5.1 billion in recoveries and receivables and 8,961 successful criminal prosecutions, according to the report, which was prepared by the IG offices of the Federal Deposit Insurance Corporation and the Federal Communications Commission on behalf of the President's Council on Integrity and Efficiency, and Executive Council on Integrity and Efficiency.

The report also highlighted the role of IGs in auditing agency financial statements. In fiscal 2007, more than 600 auditors participated alongside contractors in this massive task. Nineteen of the 24 departments received clean opinions for fiscal 2007, with only 39 material weaknesses governmentwide. Johnson said cooperation among the IG offices and agency financial managers played a crucial role in turning around financial statements in 45 days.

The annual IG report identifies the top management challenges each agency faces during the fiscal year. It also notes the top challenges governmentwide, which, for 2007, were:

Monday, April 07, 2008

In any project worth undertaking, we review past choices to improve future decisions and to assess whether the best path to meet objectives is being followed. As stewards of public funds, federal managers must ensure that every decision to expend the resources entrusted to them achieves the intended results and maximizes value in the American public’s best interests. Doing so involves taking stock of where programs are, where they should go and the best means to get there.

Recently, the Labor Department’s effort to reassess the course plotted to enhance financial management — through implementation of a new core financial system — revealed a need to alter course and take a different path to the planned destination.

The department in 2003 sought to develop a new core system to replace its accounting system in use since 1989. The mainframe-based system served the department well, as evidenced by 11 consecutive years of clean audit opinions. But we are reaching a point where updating “ancient” code to keep up with changing federal requirements is too costly and difficult.

Recognizing the need for sound financial management and accountability, we decided to replace the aging system with a state-of-the-art system that would meet the needs of our component agencies and other stakeholders. One main goal for the new system is to create an environment in which the department’s financial professionals can devote more time to value-added analysis, while letting the system perform manual, labor-intensive transaction processing.

Agencies face doing more with less, stretching every dollar, and working harder and smarter with fewer people. The start-and-stop funding associated with continuing resolutions can leave new projects without consistent financial support, impairing short-term progress and clouding long-term planning. In this environment, we must find opportunities to leverage limited assets and make tough decisions to enable the financial management community to deliver critical services as efficiently and effectively as possible.

The advantages accruing from greater standardization, coupled with funding uncertainties, has led Labor to opt for using a shared service provider. Labor, and the rest of government, have similar goals for financial management — the creation of accurate, timely and useful financial information to enhance accountability to our stakeholders, the American public. Forging multiple paths to the same destination no longer makes sense. With careful planning, and by restructuring business processes rather than modifying commercial off-the-shelf code, we will maximize our investments to date and fulfill our financial system needs for years to come.

Sometimes federal managers need to take a step back to see the path forward, and they should not be afraid to change course if doing so is in the best interest of the program and its stakeholders. The Labor Department is now on a path forward that will achieve our financial management goals, ensure fiscal accountability, transparency and more effective use of resources well into the future.

Tuesday, April 01, 2008

Jeffrey C. Steinhoff, CGFM, a member of AGA’s Northern Virginia and Washington, D.C. Chapters, retired earlier this year after 40 years of government service. His most recent position was managing director, Financial Management and Assurance, U.S. Government Accountability Office (GAO). He is an AGA Past National President and is known in the Association as the “father” of the Certified Government Financial Manager (CGFM) Program.

Is It Time to Reevaluate the Role of the Federal Balance Sheet?

AGA has been at the forefront in advocating simplicity in governmental reporting at all levels. A number of state and local governments have been experimenting with Citizen-Centric Reporting, and earlier this year the U.S. Department of the Treasury issued The Federal Government’s Financial Health: A Citizen’s Guide to the 2007 Financial Report of the United States Government, a nine-page summary presented in a user-friendly format. Further experimentation will continue as Citizen-Centric Reporting evolves and gains greater acceptance. I applaud these efforts and strongly support AGA’s continued leadership as a catalyst to move this initiative forward.

On a track parallel with the evolution of Citizen-Centric Reporting, there is also a need to reevaluate the broader content of federal financial statements and, in particular, the role of the balance sheet. The Federal Accounting Standards Advisory Board (FASAB) is now addressing the treatment of social insurance on the balance sheet, and I am confident that its ongoing deliberations will result in the right decision. FASAB’s earlier creation of the Statement of Social Insurance shines light on what are arguably the most important numbers on the federal government’s financial statements and represents a major achievement in developing useful financial statements unique to government. Building on this work, it is time to ask fundamental questions about the role of the balance sheet since it can never really capture the full range of the federal government’s assets and liabilities. Once we have decided on the role of the balance sheet, we could consider alternatives to the current financial reporting model that would ensure that all federal financial reporting objectives are met in a more useful way.

SAN FRANCISCO (Reuters) - IBM is under investigation by the U.S. Environmental Protection Agency over an $80 million bid it made in 2006 to modernize EPA financial systems and has been suspended from seeking new contracts with all U.S. agencies, the company said on Monday.

In addition, IBM said the U.S. Attorney's Office for the Eastern District of Virginia had served IBM and certain employees with grand jury subpoenas requesting testimony and documents on interactions between the EPA and IBM employees.

The temporary suspension applies to all federal agencies and IBM business units. IBM may continue work on existing contracts as of the date of the suspension, unless a particular agency directs otherwise, the company said in a statement.

About the FedCFO Publisher

Since 1994, Doug Davidson has delivered Information Technology consulting to both public and private sector clients. He is a United States citizen and a certified Project Management Professional (PMP) who's experience with federal administrative and financial management systems is in the areas of implementation, integration, operations and maintenance, federal accounting, reporting, budgeting, data extraction, data conversion, data transformation, and information synthesization.
Learn more at:
http://www.linkedin.com/in/dougdavidson
Contact the publisher:
wddavidsonjr@gmail.com